Romney Predicts Big Surplus, Calls For Tax Cut
After Record $2 Billion Month
By Michael Norton, Amy Lambiaso and Cyndi Roy for the
State House News Service
The state collected more tax
revenue in April than in any single month ever, prompting Gov. Mitt Romney
on Monday morning to predict a budget surplus of hundreds of millions
of dollars and claim there’s now no reason not to deliver on an
income tax cut approved by voters in 2000.
At a press conference to announce
John Cogliano as the state’s new transportation secretary, Romney broke the news, saying receipts in April
were $318 million above a benchmark revised upwards just two weeks ago. Tax collections are running $950 million ahead of the revenue forecast used to assemble this year’s state budget, and Romney predicted
they’ll total about $1 billion above the original forecast by the
end of the fiscal year June 30.
“It’s an extraordinary
amount of good news,” Romney said.
When this fiscal years ends,
Romney said, state government will have a surplus “in the hundreds
of millions of dollars.” Romney declined to more specifically estimate a projected surplus because it’s too early
to say how much supplemental spending and budgetary reversions will be recorded in
the next two months.
Romney earlier this year proposed
reducing the state income tax rate from 5.3 percent to 5 percent. The
House, in the budget it approved on Friday, did not include the tax cut,
with Democrats saying structural budget imbalances and unmet spending
needs make it premature to cut taxes. The House voted to study the issue
The governor says he expects
Democrats will propose many ways to spend the unexpected tax revenues.
“The voters have told us that that’s not our right, that instead
we are to return to them this money,” he said. “The
surplus is large. We’ll either spend it or give it back to the citizens
and I say it’s time to give it back to the citizens. There’s
no question but that we as a state can afford to honor the will of the
votes and return their tax rate to 5 percent.”
The Senate budget is due out
in mid-May. Those with an eye on Beacon Hill said the unexpected revenue
surge was good news for the state’s economy, but cautioned the governor
and lawmakers against implementing any tax cuts or new permanent program
“Clearly, this is unexpected
good news,” said Michael Widmer, president of the business-backed
Massachusetts Taxpayers Foundation. “But there are several cautionary
points to emphasize.”
Much of the increased revenue
is from capital gains taxes, one of the most volatile sources of state
revenues, Widmer said. He also pointed out that the state is subject to
losing millions of dollars in the long and short term through the potential elimination of federal Medicaid reimbursements due to budget cuts and rules interpretation.
Romney said the revenue surge
also means this year’s state budget is structurally balanced. “We
will not need to rely upon reserves or rainy day funds in order to balance the budget for the ’05 fiscal year,”
But Senate Ways and Means Chairwoman
Sen. Therese Murray (D-Plymouth) says a structural deficit remains.
“April's revenue figures
certainly come as good news,” Murray said in a statement. “However,
a structural deficit for FY ‘05 of approximately $735 million remains.
This is something that we have to address as we prepare the Senate Ways
and Means FY ‘06 budget recommendations.”
Murray was not available to
Senate Minority Leader Brian
Lees (R-East Longmeadow), asked today if the income tax cut would be proposed
during Senate budget debate, said: “Oh yeah.”
Sen. Robert O’Leary (D-Barnstable)
said the state ought to spend the excess money in areas that have been
cut or neglected during the last several years, such as health care and
“When all is said and
done, I don’t think the dollars are there” for the tax cut,
State budget writers since 2001
have relied on one-time revenues and reserve funds to keep the budget
balanced in the face of a recession that cut deeply into the state’s
tax base, prompting spending cuts and tax and fee increases.
A spokesman for House Ways
and Means Chairman Robert DeLeo (D-Winthrop) said the chairman is “encouraged
by the numbers,” but wants to learn more.
“DOR isn’t able
to tell us right now what exactly is driving those numbers, whether it’s
capital gains or real growth in wages,” said spokesman James Eisenberg.
“We need to see what’s behind those numbers so that we don’t
commit the sins of the last economic downturn.”
The implosion of capital gains
tax revenues was a major factor in the
budget deficits that accrued in the early 90s.
The Department of Revenue reported
Monday that tax collections in April were up 11.2 percent over April 2004. Income tax receipts were up 18.5 percent for the month, withholding taxes were up 1.8 percent, sales and
use tax receipts nudged upwards by 3.2 percent, and business tax collections
in April plummeted 47 percent for the month. The state collected more
than $2 billion in tax receipts during April.
Opponents of the tax rollback
say the unanticipated revenue should be used to return some of the $3
billion cut from the state budget during the fiscal crisis.
House Majority Leader John Rogers
(D-Norwood), former Ways and Means chairman, argued during the House’s
budget debate last week that the budget remains structurally imbalanced
due to the state’s continued reliance on one-time revenues. He said
the revenue spike is due mainly to increases in capital gains taxes, estate
taxes and bonus payments. Approving a tax cut at this time would be “fiscally
“It’s a basic value
choice,” said Noah Berger, executive director of the
Massachusetts Budget and Policy Center. “Do we say it was a good
idea to cut half a billion dollars from higher education, or do we say
no, it was unfair for the state to cut the department of education, health care,
and we should use that money to restore some of those cuts?”